national debt

Who paid off your college loans for you? Even more likely, how long did you and your parents save to put you through college? Did you have take classes at nights and work or take care of your children during the day so you could afford your education?

OWS demonstrators are complaining they are burdened with big loans..and want all loans forgiven. Of course that would mean that the 53% of Americans paying taxes would assume 1 trillion of debt to pay for their student loans.

The ‘Occupy’ movement protesters all over the country are angry above all else. Their demands remain unclear, but calls for total (or partial) forgiveness of student loans seem to be a constant among those waiving angry signs. As most Occupy prostesters are either students or recent college graduates, this demand isn’t surprising.

Whatever its merits (and I’d argue that the merits are slight) it’s interesting to look at the demand for what it is: a request for more corporate welfare.

All colleges are corporate entities. (Harvard University is actually the oldest corporation in the United States.) Unlike most other entities treated as charities or considered government agencies, they derive most of their revenue from the sale of services–education and research–to paying customers. Only a handful of institutions, maybe 400 of the country’s 4,000 or so colleges and universities, have endowments large enough that they don’t have to watch the “bottom line” for every single project they undertake. Even some colleges with big endowments–Johns Hopkins comes to mind–are fixated on growing revenue and surplus (profit). Explicitly for-profit colleges are just a little more honest about their status as businesses.

If all student loans were to be forgiven, they would almost certainly have to be forgiven for those currently enrolled. Forgiveness, furthermore, would create a precedent that tuition for all colleges would be essentially free going forward. This would amount to an open-ended subsidy that would benefit many of America’s largest corporations (the universities themselves) forever.

Tuition costs would almost certainly rise significantly in any case as the individuals consuming education services (few of whom pay “sticker price” right now) would have no reason to even look at the costs assessed.

For-profit institutions that don’t have endowments would probably have the greatest benefits from current and future loan forgiveness. After all, they encourage nearly all students to take out loans and can lose future loan eligibility (and thus their business) if too many students default. Universal forgiveness, even one time, would make sure that they would qualify for federal loans forever.

Those protesting may not know it but the demand for loan forgiveness is, among other things, a demand for more corporate welfare.

The ‘Occupy’ movement protesters all over the country are angry above all else. Their demands remain unclear, but calls for total (or partial) forgiveness of student loans seem to be a constant among those waiving angry signs. As most Occupy prostesters are either students or recent college graduates, this demand isn’t surprising.

Whatever its merits (and I’d argue that the merits are slight) it’s interesting to look at the demand for what it is: a request for more corporate welfare.

All colleges are corporate entities. (Harvard University is actually the oldest corporation in the United States.) Unlike most other entities treated as charities or considered government agencies, they derive most of their revenue from the sale of services–education and research–to paying customers. Only a handful of institutions, maybe 400 of the country’s 4,000 or so colleges and universities, have endowments large enough that they don’t have to watch the “bottom line” for every single project they undertake. Even some colleges with big endowments–Johns Hopkins comes to mind–are fixated on growing revenue and surplus (profit). Explicitly for-profit colleges are just a little more honest about their status as businesses.

If all student loans were to be forgiven, they would almost certainly have to be forgiven for those currently enrolled. Forgiveness, furthermore, would create a precedent that tuition for all colleges would be essentially free going forward. This would amount to an open-ended subsidy that would benefit many of America’s largest corporations (the universities themselves) forever.

Tuition costs would almost certainly rise significantly in any case as the individuals consuming education services (few of whom pay “sticker price” right now) would have no reason to even look at the costs assessed.

For-profit institutions that don’t have endowments would probably have the greatest benefits from current and future loan forgiveness. After all, they encourage nearly all students to take out loans and can lose future loan eligibility (and thus their business) if too many students default. Universal forgiveness, even one time, would make sure that they would qualify for federal loans forever.

Those protesting may not know it but the demand for loan forgiveness is, among other things, a demand for more corporate welfare.

On Sunday, House Budget Committee Chairman Paul Ryan laid out the gist of his strikingly bold budgetary proposal. On Tuesday, he released his well-conceived plan in its entirety. On the day in between, President Obama launched his re-election campaign.

Whether Obama acted consciously in doing so, he seemed to sense — rightly — that this was the moment. For the release of Ryan’s proposed budget offers the American citizenry a clear and unavoidable choice: liberty and prosperity, or statism and insolvency.

We are $14 trillion in debt. According to White House projections, for every $4 that the federal government brings in this year, it will spend a little over $7. The White House also projects that mandatory spending (“autopilot” spending) alone will exceed total federal revenues for this year.

In other words, if we didn’t spend a dime on national defense, national parks, interstate highways, homeland security or any other discretionary programs, we still wouldn’t be able to make ends meet — let alone start to pay off any of the $14 trillion in debt we’ve already accrued.

What Problem?

In response to these dire fiscal circumstances, Obama has proposed a budget that would increase deficit spending by $1.2 trillion next year and by $9.5 trillion over the next decade — according to the Congressional Budget Office.

Over 10 years, his budget would raise our national debt to $28 trillion. (The debt was $9.9 trillion when Obama was elected.)

His budget offers no real entitlement reform. Instead, it would fund a colossally expensive (and intrusive) new entitlement: ObamaCare.

This profligate budget continues a trend:

• In actual dollars, deficit spending during Obama’s first three years will easily exceed the previous record for deficit spending for an entire presidency.

• In inflation-adjusted dollars, deficit spending in Obama’s first three years will easily surpass deficit spending for all of World War II.

• As a percentage of the gross domestic product, average annual deficit spending under Obama has more than doubled the average annual deficit spending under any other postwar president.

Compared with Obama’s budgetary proposal, Ryan’s budget would cut deficit spending by a whopping 46% — a savings of $4.4 trillion (according to the CBO). It would cut nonsecurity discretionary spending to pre-stimulus, pre-bailout levels and would set caps on that spending.

It would repeal ObamaCare. It would reform the tax code. It would seek to eliminate corporate welfare. It would block-grant Medicaid money to the states.

Big Change

Ryan also proposes to reform Medicare, making it the same kind of premium-support program that is enjoyed by members of Congress, as the government would give future beneficiaries a choice of various plans and subsidize their costs.

The city of Los Angeles got 111 million dollars in stimulus money. The influx of cash “created or saved” 55 jobs. That would average out to $2,000,000 for every person either not fired, or hired. The city controller, Wendy Greuel said, “With our local unemployment rate over 12% we need to do a better job cutting red tape and putting Angelenos back to work.”

The Democrats took full control of both the House and Senate on January 3 unemployment rate was 4.6%, and the DOW was over 12,600 points. The GDP for the previous 3 months was a 3.5%.

How about some basic math with big numbers? If you take the amount of the stimulus spending, about800 billion dollars, and divide that by the number of people living in the United States, about 300 million, each man woman and child could have been handed a check for over $2,600.00. That would be over $10,000 for a family of four.

Here’s some more simple division with even larger numbers. Thirteen trillion dollars in national debt divided by our 300 million people works out to roughly 43,300 of each of us. Why not get a statement at the end the federal government’s fiscal year reflecting our individual share of this indebtedness?

Introduce legislation and call it the National Debt Transparency Act. Mail the reports around the same time Social Security Statements go out, and don’t forget to include all the children. It’s about $173,200 for the All American family of four.

Buried deep in the new health care law is a provision ready to add a new 2.3% tax on virtually all medical devices, including those purchased by our heroic Wounded Warriors. On March 24, 2010 an amendment proposed by Republican Senator Orin Hatch that would have exempted our vets was defeated 54 to 44. Every “Nay” vote was cast by a Democrat, including both senators Schumer and Gillibrand from New York.

Here are some Department of Education “earmarks”. A Las Vegas school district got $25,000 for a mariachi music program. Jackson State University received $478,941 to consider studying a school of osteopathic medicine, but a local paper quoted the commissioner of higher education in Mississippi saying the state had “no intention” of opening one. The Baseball Hall of Fame-$450,000, Rock and Roll Hall of Fame-$200,000 National Aviation Hall of Fame-$600,000. Last but certainly not least was New York City’s own big score.

There was $1.9 million dollars “earmarked” for the Charles B. Rangel Center for Public Service.

Amidst cries of foul on the part of Democratic leaders – including Nancy Pelosi and union boss Richard Trumka – deficit commission co-chairs Erskine Bowles and former Senator Alan Simpson have floated a trial balloon on reforms designed to help bring the national debt under control.

While the co-chairs address a number of issues ranging from taxes to government defense to entitlement programs, let’s take a look at their proposals for curbing entitlement programs.

Social Security Reforms

Index the retirement age to longevity — increase the retirement age to qualify for Social Security to age 69 by 2075.

On the face of it, this appears to be a reasonable proposal –with one exception. We need to examine the impact of delaying social security for workers who participate in dangerous and more physically stressful work. For example, it hardly seems out of line to require an attorney, doctor or anyone with a desk job to work until they are 69 before they collect their social security payments. But is it fair for a West Virginian working in the coal mines to have to put in the additional four years? The commission might wish to examine a ‘blue collar’ exception to this proposal.

While some are having an allergic reaction to this proposal, keep in mind that when Social Security was created, the average life ended at 62 years of age. That meant that roughly half of those who qualified for inclusion in Social Security were unlikely to live long enough to collect any of their social security benefits. With life spans now greatly increased –and promising to continue to rise- the system simply cannot support the payments that currently begin age 65.

RATING: One thumbs up. If the commission can devise a workable means of creating reasonable exceptions for physically challenging blue-collar jobs, this is a good proposal.

Increase progressivity of benefit formula – this would reduce benefits by 2050 for middle, and, especially, higher earners, relative to current benefits.

This is an essential proposal as it makes no sense to pay the same benefits to people with ample funds for retirement that we pay to those who are in greater need of the safety net. Nobody knows how life will turn out. Social Security should exist as a safety net for those who find the support necessary should they be unable to support themselves on their savings come retirement time.

For those who argue that they paid into the fund and should, as a result, be entitled to get their fair share out no matter what their financial status, consider this – you pay annual insurance premiums on your house, your car, etc. Does that mean you are disappointed when your house doesn’t burn down or your car isn’t stolen? After all, when nothing goes wrong, you are being denied the opportunity to collect on your insurance investment.

Why should social security be any different?

RATING: Enthusiastic two thumbs up.

Increase the Social Security contribution ceiling.

Currently, Social Security taxes are paid on approximately 86% of an individual’s earnings up to a maximum earning level of $106,800. The commission proposes raising the ceiling to include 90% of wages.

But here is the problem – as currently constructed, a person with a gross income of $10,000 will have $620.00 withheld as Social Security tax from his check, with the employer paying a matching $620.00. A person with $110,000 of gross income in 2010 pays Social Security tax of $6,621.60 resulting in an effective rate of approximately 6% which is lower than the 6.2% rate paid by those who earn less than $106,800.00. An individual earning a million dollars a year in wages will pay the same $6,621.60 in Social Security tax (resulting in an effective rate of approximately 0.66%), with similar employer matching.

Does that strike anyone as fair? Those earning the most money end up paying a dramatically lower percentage. While I don’t know that someone earning $1,000,000 should necessarily pay the full 6.2%, there does appear room for some progressive increase that would have them contributing a bit more.

Raising the ceiling to include 90% of wages does not go far enough. We need to increase the amount contributed by higher earners.

RATING: One thumb down. The provision does not go far enough to collect more from those who earn so much more.

Medicare & Medicaid

More low-income individuals into Medicaid managed care.

On the face of this proposal, it is not such a bad idea. However, it will only work if medicine is organized to provide services to what would be a substantial increase in Medicaid recipients. Currently, fewer and fewer physicians are willing to accept Medicaid payments, making it difficult for those in the program to find medical care. Greatly increasing the participation level could exacerbate this to crisis proportions.

As an additional issue, placing more people into Medicaid programs would mean increasing the burden on state governments who typically pick up ½ of the tab for Medicaid. This would hardly be the time to do this given the poor financial condition of most of our state governments.

RATING: None yet. More information needs to be provided on how state government will be positioned to handle the additional costs. We will also need to hear more as to how the realities of providing care to lower-income families in the Medicaid program will be addressed.

Increase Medicaid co-pays.

This is likely to prove an unrealistic proposal and one that could end up costing the taxpayer more money than it saves. Increasing co-pays for lower-income individuals would mean additional financial stress on people who are already struggling. If a person feels that he or she cannot afford the co-pay, that individual is likely to skip the visit to the doctor – leading, in some cases, to far greater expenses when a condition gets out of hand and requires hospitalization or worse.

RATING: Two thumbs down. This reform is likely to cost more than it saves.

While many seniors object to cutting back on Medicare Advantage programs, the fact remains that these programs exist on a government subsidy that results in Medicare paying 12% more for services and procedures than what would be paid by Medicare directly to the care giver, hospital, etc. These subsidies were always intended to end in 2010 as the insurance companies who offer Medicare Advantage argued that, come 2010, they would no longer need the government’s support to operate the programs. It was that very promise that caused government to agree to subsidize the private insurance companies when the programs went into effect. Further, much of what Medicare Advantage programs offer are non-essential services and benefits designed more to lure customers than provide valuable medical benefits (with some exceptions such as programs that include eye care and, occasionally, dental.) Medicare was never designed for these programs. Had the insurance companies been able to operate the program without government subsidy, it would be fine. They cannot – and we cannot afford to subsidize them at the expense of the majority of senior citizens who do not purchase these programs.

Cutting home health care is a different matter. Once again, these cuts can lead to greater expense. Those who benefit from this service are those who have severe difficulty leaving home to gain medical care. If the home services are cut, many will not get the care they need, resulting in far more expensive illnesses that will cost taxpayers more money than what the proposed cuts would save.

RATING: Two thumbs up on accelerating cuts to Medicare Advantage. Two thumbs down on cutting home health care services.

Create a cap for Medicaid/Medicare growth that would force Congress and the President to increase premiums or co-pays or raise the Medicare eligibility age (among other options) if the system encounters cost overruns over the course of 5 years.

It’s difficult to say how this proposal would work out. At the least, it would keep the pressure on Congress to innovate solutions or face an angry and powerful senior citizen voting block.

RATING: One thumb up. We can give it a try and see if it has the desired effect.